April 1, 2008: Vol 2, Number 4

From the Current Issue

Transaction volumes are off. Yields are on the rise. And property company share prices have been punished. But for the moment few seem willing to utter the “D” word — for distress — citing continued demand from a diverse pool of buyers and healthy fundamentals as strong underpinnings for the investment market. It looks like a healthy pullback … for the moment.

For those in the know, “green” is being taken as “read”. However, for those not informed, “green wash” is the order of the day. Major international corporates, governments and even some property investors are claiming to be green. And they believe that, by being green, they are also sustainable.

For several years now, turnover in the European real estate investment market has been growing rapidly. The total value of deals completed grew from €64 billion in 2000 to €230 billion in 2006. This growth in turnover has corresponded with an unprecedented fall in yields. The average prime office yield in Europe fell from 6.1 percent in the first quarter of 2003 to 4.8 percent in mid-2007, which is the equivalent of a 30 percent rise in capital values without even considering the rise in rental values over the same period.

For all the expectation and the fanfare, could the timing of the advent of REITs in Germany and the United Kingdom have been any worse? The market began to feel the heat of a long bull run even before the U.S. subprime crisis put the overinflated value of global real estate into sharp relief. Far from being a shiny new vehicle to make property investment more accessible and more tax-efficient, European REITs have been hit by the global anxiety gripping the commercial real estate sector.